Your company received a $9 million order on the last day of the year. You filled the order with $3 million worth of inventory. The customer picks up the order the same day and pays $3 million up front in cash; you also issue a bill for the customer to pay the remaining balance of $6 million within 40 days. Suppose your firm’s tax rate is 0% (ignore taxes). Based on the above information; a.Your earnings went up by $9 million b.No option is correct c. Your earnings did not change d.Your earnings went up by $6 million

Your company received a $9 million order on the last day of the year. You filled the order with $3 million worth of inventory. The customer picks up the order the same day and pays $3 million up front in cash; you also issue a bill for the customer to pay the remaining balance of $6 million within 40 days. Suppose your firm’s tax rate is 0% (ignore taxes). Based on the above information; a.Your earnings went up by $9 million b.No option is correct c. Your earnings did not change d.Your earnings went up by $6 million

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 20P

See similar textbooks

Similar questions

Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.
Your company received a $9 million order on the last day of the year. You filled the order with $3 million worth of inventory. The customer picks up the order the same day and pays $3 million up front in cash; you also issue a bill for the customer to pay the remaining balance of $6 million within 40 days. Suppose your firm’s tax rate is 0% (ignore taxes). Based on the above information; a. No option is correct b. Your earnings did not change c. Your earnings went up by $9 million d. Your earnings went up by $6 million
Your company received a $9 million order on the last day of the year. You filled the order with $3 million worth of inventory. The customer picks up the order the same day and pays $3 million up front in cash; you also issue a bill for the customer to pay the remaining balance of $6 million within 40 days. Suppose your firm’s tax rate is 0% (ignore taxes). Based on the above information; a.No option is correct b.Your earnings went up by $9 million c.Your earnings did not change d.Your earnings went up by $6 million
The Raattama Corporation had sales of $3.5 million last year, and it earned a 5% return (after taxes) on sales. Recently, the company has fallen behind in its accounts payable. Although its terms of purchase are net 30 days, its accounts payable represents 60 days’ purchases. The company’s treasurer is seeking to increase bank borrowing in order to become current in meeting its trade obligations (that is, to have 30 days’ payables outstanding). The company’s balance sheet is as follows (in thousands of dollars): How much bank financing is needed to eliminate the past-due accounts payable? Assume that the bank will lend the firm the amount calculated in part a. The terms of the loan offered are 8%, simple interest, and the bank uses a 360-day year for the interest calculation. What is the interest charge for 1 month? (Assume there are 30 days in a month.) (1) What is the total loan amount? (2) What are the monthly installments? (3) What is the APR of the loan? (4) What is…
The newspaper reported last week that Bennington Enterprises earned $17 million this year. The report also stated that the firm’s ROE is 14 percent. Bennington retains 70 percent of its earnings. a. What is the firm's earnings growth rate? (Round the answer to 2 decimal places.) Earnings growth rate % b. What will next year's earnings be? (Enter the answer in dollars, not millions of dollars. Omit $ sign in your response.) Next year's earnings $
Jude Corp. has annual sales of P50,735,000, an average inventory level of P15,012,000, and average accounts receivable of P10,008,000. The firm's cost of goods sold is 85% of sales. The company makes all purchases on credit and has always paid on the 30th day. However, it now plans to take full advantage of trade credit and to pay its suppliers on the 40th day. The CFO also believes that sales can be maintained at the existing level but inventory can be lowered by P1,946,000 and accounts receivable by P1,946,000. What will be the net change in the cash conversion cycle, assuming a 365-day year?-32.8 days-29.5 days-26.6 days-40.5 days-36.4 days
Margetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold are 75% of annual sales, and its receivables collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 18 days, based on a 365-day year. He believes he can reduce the average inventory to $605,885 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle? Please explain the process and show calculations.
Margetis Inc. carries an average inventory of $825,000. Its annual sales are $11 million, its cost of goods sold are 75% of annual sales, and its receivables collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 20 days, based on a 365-day year. He believes he can reduce the average inventory to $677,245 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of its cash conversion cycle? Do not round your intermediate calculations. a. $341,239 b. $854,300 c. $454,985 d. $405,733 e. $394,013 Kirk Development buys on terms of 2/15, net 45 days. It does not take discounts, and it typically pays on time, 45 days after the invoice date. Net purchases amount to $350,000 per year. On average, what is the dollar amount of…
The S&H construction company expects to have total sales next year totaling $15,300. In addition, the firm pays taxes at 35 percent and will owe $280,000 in interest expense. Based on last year’s operations the firm’s management predicts that its cost of goods sold will be 57 percent of sales and operating expenses will total 32 percent. What is your estimate of firm’s net income after taxes for the coming year? Complete the forma income statement below Round to the nearest dollar Pro-forma income statement Sales Cost of goods sold Gross profit Operating expenses Net operating income Interest expenses Earnings before taxes Taxes Net income
Atlantic Northern Inc. currently has $715,000 in accounts receivable and generated $4,650,000 in sales (all on credit) during the year that just ended. The firm’s days sales outstanding (DSO) is days. Use 365 days as the length of a year in all calculations. Atlantic Northern Inc.’s CFO is unhappy with its DSO and wants to improve collections next year. Sales are expected to grow by 13% next year, and the CFO wants to lower the DSO to the industry average of 30 days. How much accounts receivable is the firm expected to carry? $453,471 $431,877 $410,283 $388,689
The S&H construction company expects to have total sales next year totaling $14,500,00 In addition, the firm pays taxes at 35 percent and will owe $318,000 in interest expenses. Based on last year’s operations the firm’s management predicts that its cost of goods sold will be 58 percent of sales and operating expenses will total 32 percent. What is your estimate of the firm’s net income after taxes for the coming year ? Complete the pro-forma income statement below Round to the nearest dollar Pro-forma income statement Sales Cost of goods sold Gross profit Operating expenses Net operating expenses Interested expenses Earnings before taxes Taxes Net income
Hebner Housing Corporation has forecast the following numbers for this upcoming year: Sales = $1,000,000. Cost of goods sold = 600,000. Interest expense = 100,000. Net income = 180,000.The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company’s sales were to increase to $1.5 million, its cost of goods sold would increase to $900,000. The company’s CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $240,000. In order to achieve this level of net income, what level of sales will the company have to achieve? Assume that Hebner’s interest expense remains constant.